The Japanese Yen (JPY) ended its four-day decline, gaining ground against the US Dollar (USD) on Tuesday. This modest recovery, however, was tempered by concerns over weak Japanese manufacturing data, which has fueled speculation that the Bank of Japan (BoJ) may delay further interest rate hikes.
In response to rising energy costs and cost-of-living pressures, Japan is set to allocate ¥989 billion for energy subsidies. This government intervention could potentially contribute to inflation. The BoJ’s hawkish stance on monetary policy has been underscored by a recent uptick in Tokyo’s inflation rates. Additionally, Japanese firms reported a significant increase in capital spending for the second quarter.
The upside potential for the USD/JPY pair might be limited as the US Dollar strengthens, buoyed by improving Treasury yields. Traders are awaiting US employment data, particularly August’s Nonfarm Payrolls (NFP), which could provide insights into the Federal Reserve’s future rate decisions.
Market Insights: Yen Gains Amid BoJ’s Hawkish Signals
The US Bureau of Economic Analysis revealed that the Personal Consumption Expenditures (PCE) Price Index increased by 2.5% year-over-year in July, matching the previous reading but falling short of the forecasted 2.6%. The core PCE, excluding food and energy prices, rose by 2.6%, in line with previous figures but slightly below the consensus estimate of 2.7%.
In Tokyo, the Consumer Price Index (CPI) climbed to 2.6% year-over-year in August, up from 2.2% in July. Core CPI also rose to 1.6% YoY from 1.5%. Japan’s Unemployment Rate unexpectedly increased to 2.7% in July, exceeding market expectations and marking the highest rate since August 2023.
Federal Reserve Bank of Atlanta President Raphael Bostic recently suggested it might be “time to move” on rate cuts due to cooling inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which assesses the tone of Fed officials’ speeches, rated Bostic’s comments as neutral with a score of 5.6.
US economic data showed the Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, surpassing both expectations and the previous growth rate of 2.8%. Initial Jobless Claims decreased to 231,000 for the week ending August 23, slightly below the expected 232,000.
Japan’s Finance Minister Shunichi Suzuki remarked last week that foreign exchange rates are influenced by various factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. Suzuki noted the challenges in predicting the exact impact of these factors on FX rates.
Technical Analysis: USD/JPY Faces Resistance Near 147.00
On Tuesday, USD/JPY was trading around 146.70. Technical analysis indicates that the nine-day Exponential Moving Average (EMA) is positioned below the 21-day EMA, suggesting a bearish trend. The 14-day Relative Strength Index (RSI) remains below 50, reinforcing the bearish outlook.
Support levels for USD/JPY include the nine-day EMA at approximately 145.91. A decline below this level could see the pair testing the seven-month low of 141.69 recorded on August 5, with further support around 140.25.
On the upside, the pair may test resistance near the 21-day EMA at 146.97. A breakout above this level could propel the USD/JPY towards the psychological level of 150.00, followed by the 154.50 level, which has shifted from support to resistance.
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